EMC’s Pricey New Offering for Chinese Consumers and Small Businesses—Bad Guanxi?

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Updated, April 5, 2008—We’ve written a few times about EMC’s (NYSE:EMC) carefully crafted strategic push toward cloud computing and software as a service offerings—and how that relates to the enterprise-oriented company’s courting of small and medium businesses and consumers. Two vivid examples of this push are the Hopkinton, MA-based company’s acquisition last fall of Berkeley Data Systems and its Mozy online backup service, and this year’s acquisition of Seattle-based Pi, which is working on an as-yet-unreleased software environment for creating, storing, and sharing personal information.

Today comes another aspect of the consumer-facing strategy—only it’s in China, where the company has just announced StorageCredenza, a storage device for networked personal computers that it hopes will catch on with Chinese households and small businesses.

It’s a great idea in theory. China offers a huge, rapidly growing PC market. But almost immediately, EMC got hit with criticism that it has priced the system—the basic model offers one terabyte of storage and costs about $1,280, and the price goes up from there—out of reach of most Chinese consumers. Today’s Wall Street Journal has a good overview the product, and the criticism. [Update: EMC has since explained that the quoted price includes a 17 percent value added tax and omits the distributor promotions and discount expectations of Chinese consumers, which could significantly drive down the product's "real" price.]

I just wanted to weigh in because my last book, Guanxi, was about Microsoft in China. Although it focused on the software maker’s Beijing research lab, I met with several Chinese officials and conducted many interviews with Microsoft execs and employees who discussed a similar situation: Microsoft’s pricing of Word and other software in China beyond the reach of most local consumers. In short, the company endured scathing criticism that definitely hurt its “guanxi” (the word for relationships) in China.

While backup storage isn’t the essential that office software is, and will likely not draw as much attention, I can’t help but see a parallel. As the Journal points out, American consumers can buy a one-terabyte backup drive for under $300. While StorageCredenza offers other benefits, most notably software designed to recover from crashes and other potential data disasters [update: other functions or benefits include networked security, built-in media server, and content indexing that allows keyword search for document contents, as well as widespread support and service], I don’t think you’d find a lot of American households or small businesses willing to pay $1,280 or even half that price—and, as the Journal also notes, the average income here is far above that of China.

EMC is a very smart company, and I’ve been extremely impressed with its strategy as it grows into an essential data management and security powerhouse for businesses and consumers. But I still think it likely got StorageCredenza wrong and would do better to focus on very affordable products and Mozy-like services (where broadband is available) in China—to build its brand and its rep. Time will tell, though, so I might be bringing you a new update in the future.

Bob is Xconomy's founder and editor in chief. You can e-mail him at bbuderi@xconomy.com, call him at 617.500.5926. Follow @bbuderi